The house rules are simple in this weekly column. I bash a stock that I think is heading lower, and I offset the sting by recommending three stocks as portfolio replacements. So who gets tossed out this week? Come on down, Tesla Motors (Nasdaq: TSLA ) .
If you build it, they will run
The cutting-edge automaker was a blazing-hot IPO yesterday. At a time when some Wall Street debutantes have had to scale back their plans or shelve their offerings entirely, Tesla was able to bump up its minted shares by 20% to 13.3 million.
That's the first of three examples of heightened demand for Tesla. Next? The original $14-to-$16 price range was bumped to $17 at the last minute. If you want the third example, just pull up a current quote. After its first day of trading, the stock closed up 40% (peaking momentarily at $25 per share), despite a blisteringly negative day across the board.
The oft-delayed Tesla Roadster quickly became the rich toy of choice, with the automaker moving more than 1,000 of the slick $109,000 eco-friendly speedsters since last year's launch. The real buzz for Tesla -- the first stateside carmaker to go public in more than 50 years -- is the more accessible sedan that's slated to hit the market in two years at a price point closer to $50,000.
My concern with Tesla and all of the hype surrounding yesterday's IPO is that there are still more question marks than exclamation points. Yes, Tesla is cool, but it's also likely several years away from profitability.
Tesla's concept of electric cars turned heads a few years ago, but it's old news these days. Chevy's Volt and Nissan's Leaf should hit the market later this year, and hybrids have served well as an intermediary step in weaning folks off gasoline dependency.
Don't get me wrong. Tesla is exciting. It has momentum. It has well-wheeled partners, with Daimler and now Toyota (NYSE: TM ) as investors. This isn't going to be Tucker -- or even Segway -- revisited. However, I think there are economies of scale that will fail to materialize for a company targeting to move 20,000 of its sedans annually in a couple of years. Drivers who may be drawn to the novelty may begin to fret over service and parts.
I'm all for buying into Tesla when it's at least closer to proving itself. A company with a 10-figure market cap doesn't seem like a compelling value, especially since any material upside is still a few years away.
As I do every week, I don't talk down a stock unless I have three alternatives that I believe will outperform the company getting the heave-ho. Let's go over the three fill-ins.
- Ford (NYSE: F ) : Unlike GM or Chrysler, Ford became the stateside darling after resisting the government bailout. Its reward has been a sweet turnaround. The same shares that fetched as little as $1.01 a share 19 months ago have popped tenfold. Ford has gone on to crank out better-than-expected profits in each of the past few quarters, and sales are going through the sunroof. Despite the stock's torrid run, Ford is fetching a single-digit earnings multiple. Things can change if the economy veers off into another ditch, but that would be an even uglier crash for Tesla.
- Sirius XM Radio (Nasdaq: SIRI ) : Satellite radio has been one of the bigger beneficiaries of the automotive industry's turnaround. Things were looking bleak for Sirius XM before it was bailed out by a beefy Liberty Capital (Nasdaq: LCAPA ) cash infusion and made a surprisingly rapid transformation into a profitable company.
- Apple (Nasdaq: AAPL ) : If investors want a company putting out cool products, why not warm up to the tech giant that's already commanding long lines for its premium-priced products? Whether it's clearing 1.7 million iPhone 4 smartphones in three days or 3 million iPads in less than three months, don't you get the feeling that it would succeed even if Steve Jobs ever took the wraps off an electric iCar? I hope you're not nodding along, because I was just kidding. Apple's allure has actually come as it has priced its wares for the masses. Consumers paid as much as $599 for the first iPhones three years ago. They're paying a third as much for superior devices now. Tesla's mainstream success is going to come at much lower price points, if it makes it that far.
I'm sorry, Tesla. I'll have to put you up on concrete blocks for now.